The Post Wall Boom Was A Short Lived Party...But The Arts May Provide A Second Wind

In 1991, after the German parliament voted to move the country's capital from Bonn to Berlin, the once-divided city boomed. Rents skyrocketed as companies worldwide pledged to move to what was supposed to be the new heart of Europe. Three years later, few visiting heads of state pass up a photo opportunity at the Brandenburg Gate, where the Berlin Wall used to cut off the East. But all around, Berlin languishes.

Germany's stubborn recession, an unemployment rate of 13%, and foot-dragging by the government in Bonn are keeping the country's biggest conurbation, at 3.4 million people, in the shadows--a Cinderella city with no fairy godmother in sight.

Few international big names, save Sony Corp., have committed more than a token representation to Berlin. Coca-Cola Co. moved its East European headquarters to a northern suburb, but others, such as Japan's Nomura Bank, have come and gone. Of Germany's top 100 companies, only drug giant Schering keeps its headquarters in Berlin, but it was there long before the Wall fell.

Reunification caught both sides off guard. The sleepy western half of the city, so long isolated from the rest of Germany, was kept alive by subsidies that did little to foster competitive enterprise. According to economic think tank Deutsches Institut fur Wirtschaftsforschung (DIW), gross value added per employee in west Berlin was 46% lower than in other big west German cities. This year, the subsidies ended abruptly, and more than 20 companies either went bust or left the city. Last year, every sector of the economy, save construction, shrank.

DIW's Alexander Eickelpasch says Berlin needs a boost to its underdeveloped service sector to spur growth and give it the balance of a normal postindustrial center. That would mean both government and corporate headquarters would have to relocate here, a slow process not expected to speed up before the end of the century.

Not surprisingly, demand for space has evaporated and office rents are half what they were in 1991. In the initial euphoria, state-owned Lufthansa started offering 24 direct flights to Berlin from European capitals. Today, with a lot of competitors, it offers only 10. "There just isn't the traffic," says Lufthansa spokesman Wolfgang Weber.

The decline of the eastern part of the city--the former capital of a command economy--is even more dramatic. A third of its workforce was employed in the public sector. Reunification quickly did away with more than 200,000 jobs and showed up the weaknesses in the dilapidated infrastructure. The process of sorting out more than 15,000 real estate claims continues to stall investment. Only now is the development in private industry, particularly construction, beginning to take up the employment slack.

Berlin's biggest selling point in this transition phase is not what it will one day become, but what the city is now: a world-class cultural capital. Reunification nearly doubled the number of orchestras, opera houses, theaters, museums, and cabarets in Berlin. Most of these institutions will continue to be subsidized out of the city's $742 million annual arts budget. And tickets are generally cheap and available.

The city's cultural affairs office has also launched a film board, which has been provided with a $25 million annual budget to promote the city of Berlin and surrounding areas as prime locations for international filmmakers.

Like Cinderella, Berlin has a lot of cleaning up to do before it can make it to the ball. Although the Berlin Economic Development Corp. points to the 650 roads that are currently under construction and the 1,000 cranes laboring over hundreds of worksites as reasons why business should move to Berlin, it won't be until adequate housing, good infrastructure, and up-to-date office space become part of the picture that the message will get through. Until then, such projects just clog traffic and leave people short-tempered.

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